Expert panel to advise Norway on infra investment

Norway’s finance ministry has tapped three experts to review the investment policy of its $897.6bn wealth fund regarding real estate and infrastructure.

Norway’s Ministry of Finance has selected two university professors and one asset management professional to review the investment policy of the country’s sovereign wealth fund, as it explores the possibility of allowing the Government Pension Fund Global (GPFG) to invest in infrastructure.

Stijn Van Nieuwerburgh, a professor of finance at New York University, will chair the expert group. He will be joined by Richard Stanton, a professor of finance and real estate at the University of California, Berkeley; and Leo de Bever, who most recently served as chief executive of the Alberta Investment Management Corporation in Canada.

The ministry had announced in December its intention of putting together a “Strategy Council” that would examine not only whether Norway should add infrastructure to the GPFG portfolio, but also whether it was appropriate to raise the 5 percent cap currently imposed on real estate investments.

“The investment strategy of the fund has evolved gradually over time, based on comprehensive professional assessments,” Finance Minister Siv Jensen said in a statement. “Such will also be the case for the current review of real estate and infrastructure investments,” she said.

In order to determine whether Norway should begin investing in infrastructure and raise its allocation to real estate, the group will have to compile a report by November 2015 that will examine the value added from diversification, risk exposure, benchmarking, risk regulation and reporting requirements, while at the same time maintaining the fund’s current market risk levels.

A final evaluation, which will also take into consideration advice from the fund’s manager, Norges Bank, will be presented in a parliamentary white paper in the spring of 2016.

“To the extent that the Ministry decides to open up for infrastructure investments, the mandate will also include an opening up for unlisted infrastructure for renewable energy and infrastructure in emerging markets,” the ministry stated in its mandate.

Norway’s GPFG began investing in real estate in 2008. Two years later, the ministry explored the possibility of adding infrastructure to its portfolio, noting that there were similarities between the asset class and real estate. However, the ministry decided not to invest in infrastructure at the time promising to revisit the matter “at a later stage.”

To date, the fund has only been allowed to invest in stocks, bonds and real estate. As for infrastructure specifically, the GPFG can buy listed stocks or bonds of companies that run infrastructure projects but cannot invest in them directly unless the project company itself is listed.

As of March 31, 2015, the majority of the fund – 62.5 percent – was invested in equities; 35.3 percent in fixed income and 2.3 percent in real estate, according to Norges Bank’s website.

The Government Pension Fund was created in 1990 to invest revenues generated by Norway’s oil and gas sectors in order to finance rising public pension expenditures.